Bechtel Ends Move for Work In Iraq, Seeing A Done Deal

By NEELA BANERJEE

Published: August 8, 2003

The Bechtel Group, one of the world's biggest engineering and construction companies, has dropped out of the running for a contract to rebuild the Iraqi oil industry, as other competitors have begun to conclude that the bidding process favors the one company already working in Iraq, Halliburton.

After the United States Army Corps of Engineers quietly selected Halliburton in the spring to perform early repairs of the Iraqi oil business in the aftermath of the war, other companies and members of Congress protested that the work should have been awarded through competitive bidding.

Halliburton's role in the rebuilding has been under political scrutiny because the company was formerly headed by Vice President Dick Cheney. But the Bush administration and the Corps of Engineers, which is overseeing the Iraqi oil reconstruction effort, have repeatedly said that Halliburton has no inside track.

Preliminary plans for a new contract, which industry executives had thought might total $1 billion, were announced late in June by the Corps of Engineers. The bidding was meant, in part, to introduce competition and a sense of fairness into the lucrative Iraqi reconstruction market, an executive with a major engineering concern said. Like many industry executives, he would speak only on condition of anonymity because his company does not want to jeopardize its chances for future government contracts.

But in the last month, the corps, which is overseeing the reconstruction efforts, has specified a timetable for the work that effectively means that the value of any contract companies other than Halliburton could win would be worth only about $176 million, according to Corps of Engineers documents and executives in the engineering and construction business.

Earlier this week, Bechtel cited the timetable as its reason for dropping out of the bidding. The company now plans to deal directly with the Iraqi oil ministry for future reconstruction work, a spokesman, Howard N. Menaker, said.

Although the oil ministry and the Army Corps of Engineers nominally cooperate, industry analysts say the Americans have the upper hand.

Officials of the Corps of Engineers did not return numerous phone calls yesterday seeking comment on the contract. But last month, in response to questions from other companies about Halliburton's role, the corps said on its Web site that all potential bidders had received the same information to ''eliminate any competitive advantage'' Halliburton might have from its involvement in the Iraqi reconstruction work so far.

A spokeswoman for Halliburton, Wendy Hall, would not discuss whether its engineering unit, Kellogg Brown & Root, would bid, saying only that ''we will evaluate the opportunity.''

After indicating in June that it planned to solicit bids, the Corps of Engineers held a conference of prospective bidders in Dallas on July 14. Records of the meeting show that it was attended by some of the most experienced engineering and construction companies in the world -- including, besides Halliburton and Bechtel, Fluor, the Parsons Group, Schlumberger and Foster Wheeler.

Among those companies, only Fluor and Parsons have indicated so far that they plan to make bids by the Aug. 14 deadline. A winner will be announced by Oct. 15, according to the Corps of Engineers.

At the meeting and in the initial request for proposals, the Corps of Engineers put forth what the industry calls ''an indefinite quantity, indefinite delivery'' contract. Industry executives said they were told there could in fact be two principal contracts, one for the oil industry in northern Iraq and the other for the south. The value of each contract could range from $500,000 to $500 million over several years, according to the Corps of Engineers, which cited the continued instability in Iraq as a reason for keeping the terms so vague.

A transcript of the July meeting shows that bidders were concerned even then that Halliburton would have a competitive advantage over other companies because it was already working with the Corps of Engineers in Iraq and helping to assess the repairs needed at oil production sites and pipelines after the war and years of an economic embargo.

The corps denied that such a conflict of interest existed, according to the transcript.

Over the last three weeks, however, the Corps of Engineers has provided additional information to bidders indicating that by the July meeting, it and Halliburton already had a fairly clear understanding of the scope and financial value of the work to be done and the timetable for completing it.

The newly released information indicates that a week before the Dallas meeting, the Corps of Engineers and Halliburton participated in a large workshop in Baghdad that also included representatives of the Iraqi oil ministry and the ruling Coalition Provisional Authority to draw up a detailed plan for rebuilding much of the Iraqi oil industry by the end of March 2004.

A week ago, the Corps of Engineers Web site carried an amendment to the contract proposal, saying that 220 projects, mostly at installations above the ground, must be completed for Iraq's oil production to reach prewar levels. The projects are divided into three phases, with a total estimated cost of $1.14 billion.

But the corps notes in the plan that the first two phases, which together would require about $967 million in investments, would have to be completed by Dec. 31.

Halliburton's competitors worry that if the winner of the new contracts is not announced until Oct. 15, that company could not even begin the work before year's end. The only company that could do the work based on that timetable is Halliburton, its competitors say.

Only the third and final phase, worth about $176 million and requiring the work to be completed by March 31, could realistically be performed by a Halliburton competitor, its rivals say.

''The feeling at our company was 'Yes, Halliburton is the incumbent, but we had an opportunity there,' '' a representative of another engineering concern said. ''But if we had believed that from the beginning we had no chance of winning this, we wouldn't have bid.''

Responding to pointed questions about the timetable by potential bidders, the Corps of Engineers' Web site said the proposed schedule was ''not intended to change anything'' about the bidding process.

For its part, the Kellogg Brown & Root unit of Halliburton will do whatever work the corps gives it, Ms. Hall, the spokeswoman, said.

''It is not known at this time how or if the future award of another Corps of Engineers contract will affect current K.B.R. operations or the terms and conditions of its contract,'' she said.

The first wave of Halliburton employees arrived in Iraq in March, to oversee the extinguishing of several oil well fires near Basra. Since then, its responsibilities, under the direction of the Corps of Engineers, have expanded from its initial job of making emergency repairs.

Working in Iraq has helped turn around Halliburton's financial performance, its second-quarter results showed. The company made a profit of $26 million, in contrast to a loss of $498 million in the period a year earlier. The company stated that 9 percent, or $324 million, of its second-quarter revenue of $3.6 billion came from its work in Iraq.